Monday, 18 March 2013

TDS on Immovable Property U/s 194IA

In an attempt to address the fiscal deficit and increase revenue collection, among other things, the finance minister has said that 1% tax will be deducted at source (TDS) on immovable property. The cut-off value for such a transfer of property is above Rs.50 lakh. So if you have a house or a plot of land, which is valued above Rs.50 lakh at the time of sale, then you will have to pay a TDS of 1% while selling it. Agricultural land is exempt from this.
The proposed TDS provision is to be applied to transfer of immovable property, wherein the ‘immovable property’ means:
  • Any land (other than agricultural land) or
  • Any building; or
  • Part of a building.
As per Finance Bill 2013, the proposed amendment will be applicable from 1 June 2013.
Similar provisions were also proposed by the Finance Bill, 2012; but due to much hue and cry, the said provisions were not incorporated when the final Bill was passed by the parliament. It is worthwhile to see how the current TDS provision which are applicable to sale of immovable property is different than proposed vide Finance Bill, 2012.
In Finance Bill 2012 TDS was proposed to be applicable only if -
  • Sale consideration equal to or more than INR 5,000,000 for immovable property in specified areas
  • Sale consideration equal to or more than INR 2,000,000 for immovable property in other areas
But in Finance Bill 2013 TDS applicable only if consideration equal to or more than INR 50, 00,000.
Further, in Finance Bill 2012 there were following provisions too, such as –
  • Stamp duty value has to be considered for withholding of taxes where the consideration for transfer is less than the stamp duty value
  • Proof of withholding of taxes to be furnished to the authority registering the document of transfer of immovable property, failing which the property will not be registered
  • Tax Deduction Account Number (TAN) is not compulsory to the Purchaser of property to comply with the above provisions
However these provisions are there in Finance Bill 2013.
The reason of introducing this TDS provision is not quoting of PAN number by seller or buyer in most of the transactions and significant transactions not being reported.
To track the real estate transactions in more realistic manner, the Finance Minister has introduced this new TDS provision by inserting section 194IA with the current TDS provisions restricted under the Income Tax Act, 1961.
The difficulty that a buyer may face to implement this TDS provision will be as under:
  • Obtaining TAN number for complying with the provisions;
  • Issuance of TDS certificate to the seller;
  • Filing of TDS return quarterly and mention PAN of the seller;
  • Taxes needs to be deposited within the specified time limit with the Government; and
  • May be scrutinized by the TDS officer
Note: It is better to keep in mind that the above rate of 1% may increase to 20% if seller does not provide PAN due to overriding provision of section 206AA of ITA.
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